Cash Pooling

In a physical pool the bank sweeps the balances of the participating accounts into a master account held by the pool leader, usually the parent company or a group finance company. With zero balancing every account goes back to zero at the end of the day. With target balancing only the amount above an agreed base is swept, and an account below it is topped up. Each sweep creates an intercompany loan: the subsidiary that pays in holds a claim on the pool leader, and the subsidiary that draws owes it money, as the IONOS startup guide on cash pooling explains.

A notional pool moves no money. The bank adds up the credit and debit balances of the participating accounts and calculates interest on the net figure, while every company keeps its own account and balance. Notional pooling is prohibited in several countries, among them the United States, South Africa, India and the Philippines, according to WallStreetMojo. Groups with accounts in several currencies often use a hybrid: a physical pool for the euro accounts and a notional pool for the companies in other currency areas.

Section 30 of the GmbH Act forbids a German limited company to pay out to its shareholders the assets it needs to preserve its share capital, and an upstream sweep from a subsidiary to its parent is such a payment. The ban does not apply when the payment is covered by a full-value claim for repayment against the shareholder, or when a domination or profit transfer agreement is in place. If the parent's ability to repay is in doubt, the claim is no longer full value, so the managing directors of each subsidiary have to watch the credit quality of the pool leader.

Tax law sets a second test. Interest rates and terms inside the pool have to match what unrelated parties would agree, and a loan on terms that are too favorable can be treated as a hidden profit distribution. The written cash pool agreement therefore sets interest, credit limits, repayment, information rights, notice periods and the rules for joining or leaving the pool.

Taking deposits from group companies and lending to them would be banking business if an outsider did it. Section 2 (1) no. 7 of the German Banking Act excludes companies that conduct banking business only with their parent, subsidiaries or sister companies, which is why a group finance company can lead a pool without a license. Paying suppliers on behalf of the subsidiaries is a different question under the payment services rules, set out on the payment factory page.

Across borders every participating country brings its own rules on capital maintenance, tax and foreign exchange. Some countries restrict cash pooling, and the cash of the local companies then stays trapped in local accounts.

Pools were built around the banking day, with one sweep in the evening and interest on the closing balance. Since Regulation (EU) 2024/886 took effect, every payment service provider in the euro area that offers SEPA credit transfers must also offer instant ones, at any hour. Money can now leave a pooled account at night or on a Sunday. A treasurer needs to know from the bank whether sweeps run more than once a day and how an account that an instant payment empties after the last sweep gets funded. The corporate treasury page covers the wider effect of instant payments on cash positions.

Finance Loop is the meeting place for treasurers and for the bankers who build the account structures behind a cash pool. It connects the finance, IT and AI communities in Germany, Austria and Switzerland, with events in Frankfurt, Munich, Berlin and Hamburg.

Finance Loop supports When Banks Say 'No', a half-day payments seminar in Frankfurt for compliance, treasury, finance, export and legal teams on blocked payments, de-risking and sanctions. Finance Loop is also media partner of Capital & Code, a Frankfurt conference whose audience includes corporate treasurers who manage liquidity and risk.

Cash pooling is a treasury technique in which the bank balances of several group companies are combined, physically or for interest purposes only, so that surpluses offset deficits. The group pays less overdraft interest and needs less outside credit.

Physical pooling moves the money: balances are swept into a master account and each sweep creates an intercompany loan. Notional pooling leaves the money on each account and only nets the balances when the bank calculates interest.

Zero balancing is a form of physical pooling. At the end of each day the bank brings every participating account to zero, by sweeping a credit balance to the master account or by covering a debit balance from it.

Yes. A group finance company may lead a pool without a banking license under the group exemption of the Banking Act. Under the GmbH Act every upstream sweep must be covered by a full-value repayment claim against the parent, unless a domination or profit transfer agreement exists.